A service level agreement (SLA) is an outsourcing and technology vendor contract that outlines a level of service that a supplier promises to deliver to the customer. It outlines metrics such as uptime, delivery time, response time, and resolution time. An SLA also details the course of action when requirements are not met, such as additional support or pricing discounts. SLAs are typically agreed upon between a client and a service provider, although business units within the same company can also make SLAs with each other.
What are the types of service level agreements?
Here are some common types of service level agreements (SLAs).
Customer-level SLA
A customer-based SLA is an agreement that covers all of the services used by a customer. A customer service level agreement covers specific details of services, provisions of service availability, an outline of responsibilities, escalation procedures, and terms for cancellation.
Service-level SLA
A service-level SLA is a contract that details an identical service offered to multiple customers. For example, if a service provider had multiple clients using its virtual help desk, the same service-based SLA would be issued to all clients.
Multi-level SLA
This type of agreement is split into multiple levels that integrate several conditions into the same system. This approach is suitable for providers that have many customers using their product at different price ranges or service levels. These differing service levels can be built into a multi-level SLA.
What are the common elements of a service level agreement?
There are a number of common elements that you can include in a service level agreement (SLA).
Agreement overview
An agreement overview includes the start and end dates of an SLA, details of the parties involved, and an overview of the services included.
Description of services
A description of services outlines all services provided within an SLA. It details information such as turnaround times, technologies and applications, maintenance schedules, and processes and procedures.
Exclusions
This section describes all exclusions and exemptions that are agreed upon by both parties.
Service level objective
A service level objective (SLO) is an agreement within an SLA about a specific metric like response time or uptime. Both parties agree to key service performance metrics backed by data.
Security standards
Both the service provider and the client use security standards to demonstrate the security measures and protocols in place. This section also commonly includes non-disclosure agreements (NDAs) and anti-poaching agreements.
Disaster recovery process
An SLA will often detail the process of disaster recovery and outline the mechanisms and processes to follow in case of service failure of the vendor. This section also includes information on the restarting process, including restart times and alerts.
Service tracking and reporting agreement
In this section, performance metrics are agreed upon by both parties. Most customers closely track their service performance. A reasonable baseline for this tracking would be before and after using a new service provider.
Penalties
This section clearly states the penalties, financial or otherwise, that either side incurs if they fail to live up to their SLA obligations.
Termination processes
There may come a time when you want to bring your agreement to an end. In addition to requiring a notice period from either party, the SLA also clearly outlines the circumstances that permit termination or expiration.
Review and change processes
It is important that you regularly review your SLA and any key performance indicators (KPIs) that you are using to measure performance. Any large-scale changes in your requirements need to be recorded in the agreement.
Signatures
The agreement to each item contained in the document is reviewed and signed by authorized individuals and pertinent stakeholders from both sides. As long as the agreement is in effect, both parties are bound by it.
What are some examples of metrics that service level agreements cover?
There are several common metrics you can expect service level agreements (SLAs) to cover. These enable you to measure your service provider’s performance levels as agreed upon in your service level agreement. Here are some common SLA metrics.
Service availability
Service availability is the amount of time that a provider’s service is available for use. This is sometimes measured in a time slot. For example, your SLA might specify that a provider’s service will be available for a minimum of 99.5% capacity for a specific 12-hour window each day. If you have an ecommerce platform that receives orders around the clock, an SLA that guarantees availability of 99.99% for 24 hours a day would be more appropriate. Though, it’ll come at an added cost.
Error rates
Clients monitor error rates to measure how often their IT service provider delivers a level of service that falls below customer expectations. For example, clients can set defect rates as a metric to monitor the performance of a virtual service desk. If the number of negative interactions rises above a certain level, this will be flagged. Another example is software testing, where you can set acceptable error rates for coding.
Security
It’s critical to measure controllable security metrics, such as antivirus updates and patches, to demonstrate that the vendor takes preventive measures to reduce unintended access.
Response times
This metric sets out the acceptable response time for a monitor. If the maximum response time is two seconds, for example, then the metric measures the average time from multiple locations. As long as the average from all of the sites is below two seconds, it would be considered sufficient.
Business results
You can measure business results directly attributable to your SLA through the use of key performance indicators (KPIs) that both parties agree to.
First-call resolution rates
This metric shows how many customers were able to have their issues solved by the service provider during their first contact with a help desk or chatbot.
Abandonment rates
Abandonment rates are appropriate to measure for customer service providers. The abandonment rate shows how many customers ended their communication before getting an answer to their query from the customer service team. A service level agreement would typically include a very low abandonment rate.
What factors should I consider when setting metrics for a service level agreement?
There are a number of factors to consider when setting metrics for your service level agreement. They include the following:
- Motivate with metrics. Metrics should motivate both parties to work collaboratively and encourage appropriate behavior
- Agree to metrics that are within the control of the service provider.
- Choose metrics that can easily be collected and quantified.
- Set a proper baseline from which to begin the contract.
- Try to agree on a manageable number of metrics. Too many and it will become difficult to oversee.
- Ensure all metrics are very clearly defined.
How can a client monitor vendor performance against the service level agreement?
It is important that clients consistently monitor a service provider’s performance against the service level agreement (SLA). Clients commonly run weekly status reports that monitor performance. Consistent failures from either side could incur penalties or indicate when it’s time to change service providers.
Most service providers make their data and statistics readily available to customers through a customer platform. Information can also be found about whether the client is eligible for remuneration in the event of continued failings.
If the portal used to monitor services is controlled by a third party, it’s important that they’re involved in the SLA agreement process. This ensures there’s no room for error when it comes to the service expected.
What kind of penalties can service providers incur?
There are several penalties that can be incurred by service providers if they fail to uphold their service level agreement (SLA) responsibilities.
Service credits
Service credits, sometimes known as service level credits, are deducted from monies owed under a service level contract. Service credits are deducted when a service provider fails to meet standards set out in the service level agreement. Service providers can regain service level credits in the form of earn backs if agreed upon by both parties in the SLA. Providers are generally eligible for earn backs if they perform at or above the agreed service levels for a period of time.
Financial penalties
A service provider can be hit with a financial penalty for failing to meet its service management obligations. Both parties must agree in the SLA upon the failings needed to bring forward a financial penalty and the amounts required.
License extensions and support
In the event of failing to meet its obligations, a vendor can be required to extend the terms of the license or continue the contract without further charge.
What is the difference between SLA and KPI?
A service level agreement (SLA) sets out how a client and services provider work together and what their individual responsibilities are. On the other hand, a key performance indicator (KPI) measures how successfully people or teams are performing against a group of standards. Typically, KPIs are used to measure internal performance standards, while a service level agreement is more suitable to define standards in a client-contractor relationship.s
